Weekly E-mini Second Leg Sideways to Down

Market Overview: S&P 500 E-mini Futures

The market formed a weekly E-mini second leg sideways to down, testing near the 20-week EMA. Bears need strong follow-through selling trading below the 20-week EMA to show they are in control. Bulls want the 20-week EMA to act as support, forming a wedge bull flag, with the first two legs being Oct 10 and Nov 21, or a double bottom bull flag (Nov 21 and Dec 17).

S&P500 E-mini futures

The Weekly S&P 500 E-mini chart

• This week’s E-mini candlestick was a bear bar closing in its upper half with a long tail below.
• Last week, we said traders would watch whether bears could create a follow-through bear bar, or whether the market lacks follow-through selling and instead retests the all-time high in the weeks ahead.
• The market traded lower in the first half of the week but reversed to close off the week’s low by Friday.
• Bears created the first streak of four consecutive bear bodies since February, testing the 20-week EMA in November.
• They see the recent rally (Dec 11) as a retest of the prior trend extreme high (Oct 29).
• They hope the market stalls near the November 12 high area, forming a double top bear flag (Nov 12 and Dec 11) and a lower high major trend reversal.
• They are looking for a second leg sideways to down to retest the November 21 low. The market formed the second leg sideways to down this week but the follow-through selling remains limited.
• If the market trades higher, bears want the December 11 high area to act as resistance, stalling at another lower high, forming a larger double top bear flag (with Dec 11) or a wedge bear flag (with Nov 12 and Dec 11).
• Bears need strong follow-through selling trading below the 20-week EMA to show they are in control.
• Bulls see the recent selloff (Nov 21) as a pullback that has alleviated overbought conditions.
• They see this week as the second leg sideways to down of the pullback phase want it to be weak and trading sideways.
• Bulls want the 20-week EMA to act as support, forming a wedge bull flag, with the first two legs being Oct 10 and Nov 21, or a double bottom bull flag (Nov 21 and Dec 17).
• They want a retest and breakout above the all-time high, followed by a resumption of the bull trend.
• At the least, they want a second leg sideways to up to retest the December 11 high.
• The recent pullback to the 20-week EMA (Nov 21) has traders asking whether overbought conditions have been sufficiently worked off.
• While the market has made new all-time highs since September, the overlapping range in the last 14-weeks indicates more two-sided trading evidence of a loss of momentum.
• For now, traders will watch whether bears can create more follow-through testing the 20-week EMA.
• Or whether the market lacks follow-through selling followed by a retest of the December 11 high in the weeks ahead instead.

The Daily S&P 500 E-mini chart

• The market traded lower in the first half of the week. Thursday gapped higher and formed a pullback, and Friday traded higher, closing above the 20-day EMA.
• Last week, we said traders would watch whether bears could generate follow-through selling below the 20-day EMA, or whether the move would stall around the 20-day EMA and be followed by a second leg sideways to up.
• Bulls hope the November 21 pullback has relieved overbought conditions.
• They view this week (Dec 17) as a pullback and want the 20-day EMA to act as support.
• Bulls want a reversal from a wedge bull flag, with the first two legs on October 10 and November 21.
• They hope for a retest and breakout above the all-time high with sustained follow-through buying to increase the odds of trend resumption.
• If the market trades lower, bulls want a higher low relative to the November 21 low.
• Bears see the recent rally as a retest of the all-time high (Oct 29).
• They want the market to stall near the November 12 high, forming a double top bear flag (Nov 12 and Dec 11) and a larger lower high major trend reversal.
• Bears see Friday’s move as a pullback and want at least a small second leg sideways to down to retest the December 17 low.
• Bears need consecutive strong bear bars closing near their lows and trading well below the 20-day EMA to signal control.
• If the market trades higher, bears want it to stall near the December 11 high, forming another lower high.
• Since September, the market has made new all-time highs with increasingly overlapping ranges, indicating more two-sided trading and reduced momentum.
• Traders are watching whether bears can create a second leg sideways to down below the 20-day EMA, or whether the pullback holds around the 20-day EMA as a higher low relative to November 21, followed by a second leg sideways to up instead.

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